Insights

Interim Order Prevents One Party from Accessing Contractual Damage Compensation until Appeal is Decided

In an application brought by Veolia Water Technologies Inc. (“Veolia”),
Justice Ottenbreit granted an interim order preventing K+S Potash Canada
General Partnership (“K+S”) from accessing compensation for damages in the
form of letters of credit (“LOCs”) until an appeal by Veolia is heard and
decided.

The appeal—which has not yet been heard—is based on the following:

K+S had originally brought an application against Veolia seeking damages in
excess of $180,000,000 after a contractual dispute arose.

Veolia provided two LOCs; one for if they defaulted on certain contractual
obligations, and the second to cover damages in the event steel framing
supporting a crystallizer (designed and supplied by Veolia) collapsed.
Access for the second LOC was dependant on the damage being attributable to
Veolia and recoverable under the contract.

K+S had taken steps to draw from the first LOC. They also gave notice of
their intention to take similar steps for the second.

Veolia’s position was that K+S had no right to access the LOCs. They argued
that no default had occurred, or, that a court or arbitrator must first
determine which party was liable before K+S had a right to access the LOCs.
The Chambers judge dismissed this application, and Veolia appealed.

This interim order finds itself between the original application and the
appeal.

Section 20(1) of The Court of Appeal Act, 2000, SS 2000, c C-42.1
outlines when a judge may hear an application for an interim order:

A single judge sitting in chambers may hear and dispose of an application
or motion that is incidental to an appeal or matter pending in the court
and that does not involve the decision of the appeal on the merits.

Deciding against K+S’ argument, Justice Ottenbreit determined he had
jurisdiction to make the interim order.

Justice Ottenbreit referred to the Saskatchewan cases,Beare v Kirby Enterprises Inc., 2013 SKCA 44, 414 Sask R 66; and Carman Loraas v Bruce Loraas (15 May 2018) to affirm his power to
determine this matter. Although the courts in both cases dismissed the
application, they supported a single judge’s authority to decide whether to
grant an injunctive relief.

Justice Ottenbreit also cited Morin v Matheson, 2017 SKCA 80 (“ Morin”) as support for a single judge’s authority to grant an
interim order. In Morin, the court said that granting this type of
relief preserves the status quo and prevents the frustration of an appeal;
both desired by the courts.

Deciding whether to exercise this power is fact-specific. In this case, the
power was exercised because the interim order was incidental to the
appeal—in essence, it did not seek the same thing sought in the appeal.

The appeal itself is centered on Veolia’s argument that K+S does not have
the right to access the LOCs, and that any money already accessed by K+S
should be repaid to Veolia. The interim order, by contrast, is a short-term
request to prevent K+S from accessing the LOCs in the meantime
(until the appeal is decided).

Justice Ottenbreit relied on the test from RJR-MacDonald Inc. v Canada (Attorney General), [1994] 1 SCR 31,
which questions whether an applicant (here, Veolia) has shown: (a) that the
appeal raises a serious question to be tried (generally a low threshold);
(b) that irreparable harm will result if the relief is not granted; and (c)
the balance of convenience or inconvenience is in its favour (essentially,
Veolia would be more inconvenienced if the interim order was not granted
than K+S would be if the interim order was granted).

Veolia satisfied all parts of the test. The ground for Veolia’s appeal
crossed the “serious question” threshold, though Justice Ottenbreit did not
elaborate on this point.

“Irreparable harm” was met, because if the interim order was not granted,
K+S would likely have access to the LOCs—the very thing the appeal seeks to
prevent. K+S’ access prior to the appeal would render the appeal itself
pointless.

Finally, the “balance of convenience” question was answered in favour of
Veolia. K+S’ access to the LOCs would be a greater harm to Veolia than the
harm K+S would experience from being temporarily barred from the LOCs. If
the appeal, for example, is decided in K+S’ favour, they will be
compensated for the delay accordingly.

Though courts have been reluctant to grant interim orders in the past, this
decision shows that a single judge, in considering the facts of a case, is
empowered to grant this type of relief.

The basis for this decision requires an interim order to be incidental to
its connected appeal or motion. The decision also emphasizes the importance
of preserving the status quo leading up to an appeal, and a method by which
a party may attain interim relief.